December 11, 2015
TORONTO - Asif Khan, RE/MAX All-Stars
Over the last two days, the Federal Government's announcement about tightening mortgage rules for required downpayment has been making a buzz on the news.
It's being reported as "an effort to cool the red-hot housing markets in Toronto and Vancouver". Here's what the plan is:
The new regulations will increase the minimum down payment required to buy a home priced over $500,000. The initial $500,000 of your purchase will still qualify for 5% downpayment, anything beyond that will require a 10 per cent down payment. If you purchase a home for $600,000, and will be paying 5% down, you can only do so on the first $500,000; the other $100,000 will require 10% down (so an extra downpayment of $5,000).
Now before everyone freaks out and thinks this will really cool down the market, let's look at it closer. Not many people purchasing a home for $500,000 or more will qualify for the minimum 5% down, and even if they did, most choose to pay on average between 10% and 20% down. Banks are pretty tight on who they will qualify for 5% down. Secondly, IF someone really wants to put 5% down on a $750,000 purchase, they will just go out and get a second mortgage to top up their downpayment. This rule is going to open the door for lenders to make some extra dollars on second mortgages. Private Lenders that have been squeezed out of the mortgage picture, due to the low interest rates, can now jump back in and offer top-up seconds.
Will this really "cool the red-hot markets in Toronto and Vancouver"? Not at all. Demand remains high. Supply remains low, and although it sounds like a really cool idea to introduce a catalyst for negative pressure on house prices, it's not that big of a deal. People that only have 5% down should not be purchasing a home priced over $500,000 anyway. Our lending rules are already tight enough that people that can't afford a certain price point, will not qualify for that price point. I see this as a great way to increase home owners' equity in their homes, and outside of that it is nothing else. Don't "bank" on prices to drop anytime soon. The time to get into the home ownership game is NOW. Waiting for the sky to fall is just going to put home ownership farther out of reach because the market is not slowing down anytime soon.
If you'd like to discuss your home ownership plans in more detail and would like a customized equity analysis for your real estate portfolio, let's set an appointment to meet. Send me a message or find me on twitter @homesearchpros.